The return of Reganomics and its tax cuts, curbed social spending and other supply-side economic concepts seems inevitable. President Bush's campaign, based on the principles "compassionate conservatism," has given way to conservative economic policy imbued with the notion that excessive taxation is the cause of the nation's troubled economy. The irony of the President's hatred of taxes is that the money he so desperately needs to fund military escapades, homeland security and national defense are paid for with the taxes he so despises.
Many a president and Congress have cut taxes in order to stimulate economic growth, but the problem with Bush's most recent tax cut is that it will do little to spur economic growth, and most likely only will worsen the current economic situation.
Bush's tax proposal is a $674 billion plan, $364 billion of which aims at the elimination of the tax on corporate stock dividends. The proposal also calls for the final implementation of the President's $1.35 trillion tax cut, which was passed in 2001. The elimination of the dividend tax, however, is by far the most controversial.
The dividend tax should be eliminated. It does not make sense to tax a corporation twice, first for the revenue it produces and then again for the money it gave back to investors in the form of dividends.
The Bush administration justifies the tax cut as an economic stimulus, a way to revive the national economy. This justification for the tax cut is not only wrong, but a lie the administration is propagating in order to garner public support.
The idea behind the tax cut is rather simple: cutting dividend taxes will spur more investors to purchase stock in corporations that give frequent returns to investors in the form of dividends. The increase investment in these corporations helps the corporations and the rest of the economy and the dividends they pay out help the investor.
This embrace of supply-side economics will not work because there are too many loopholes in the plan, such as if corporations lose money, and a dividend is paid out, the investor will have to pay taxes on it. But the main reason the tax cut will not spur on economic growth is that it affects too small a portion of the American public.
The elimination of the dividend tax will not spur economic growth; it is not an economic stimulus package. It will not create jobs, increase government spending or even increase consumer spending for that matter. All the tax will do is lessen the cost to investors who own stock in companies that pay out dividends.
While Democrats have mistakenly used this as political fodder to bash the tax cut, the point they make is clear and sound: only Americans with enough money to be heavily invested in the stock market, and thus invested in companies that pay out dividends, will benefit from this new batch of tax cuts.
It is easy to see how the dividend tax cut will benefit wealthy investors, but that is not the reason the Bush administration is promoting this new plan for reviving the economy. The point of the tax cuts is not about Bush and the Republicans waging war on the poor, but about the administration waging war on the present fiscal policies put in place by the previous Democratic administration.
Bush is battling what he believes to be big government; widespread government spending on social programs such as social security and welfare, which he believes are wrong for ideological reasons. The irony in Bush's battle against big government is that he is actually increasing government spending through his policies on homeland security and impending military actions against such foes as Iraq and North Korea.
The president and his advisors have taken a good idea in eliminating the dividend tax and justified it for the wrong reasons because they want support for an economic policy that is illogical and wrong. The economy under President Bush will not strengthen but only continue to sour and worsen. The President's tax cuts in reality merely take money out from the federal budget during a time in which government spending on defense and homeland security is actually increasing, causing the deficit to inflate and money to be sapped from social security and welfare.
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